Why You Should Put Employees Ahead of Customers

At first glance, Vineet Nayar's Employees First, Customers Second seems like one of those books that makes me roll my eyes. Yet another paean in which executives warble, "You're our most important asset" in four-part harmony -- until interrupted by a crash of cymbals and a falling stock.

But it's not like that. Sure, it's inspiring and warm, and Vineet is majorly charismatic. (Disclosure: I knew and admired him long before I read the book, my copy of which is signed, "Dear Tom.") What he has to say, however, is firmly grounded in history and research; for the right kind of company it's a proven strategy for success. But it's not as simple as reading Khalil Gibran on friendship at the company picnic, andit's not for everyone. Therein lies our tale. This isn't philosophy. It's strategy.

Vineet is the CEO of HCL Technologies, an Indian IT services giant ($5.3 billion in annual sales, 71,000 employees, 29 countries). When he took over in 2005, HCLT was growing slower than its market, i.e., it was falling behind, a candidate to become a frog that doesn't realize it's in hot water. (Incidentally, although it's a useful fable for managers, the tale of the slowly boiled frog is false as a matter of biology.)

In brief, and as his book's title says, Vineet announced that he intended to put the interest of his employees ahead of that of his customers. This caused some consternation, not least among the employees themselves, but also among customers and in the stock market. Most of the book describes HCLT's journey of change -- a not-unrecognizable tale of hosting candid conversations, building trust, inverting pyramids, and achieving success. We've heard such stories before, but it's always good to hear them again, because we forget, because every year business schools graduate a fresh crop of MBAs who can do regressions but have retrogressive ideas about managing people, because every downturn produces a new carton of inappropriately hard-boiled bosses, and because truly gifted change leadership is very rare and exciting to read about.

But Vineet's heart is in the right place because his head is, too. HCLT's success begins with a shrewd new reading of the strategic map on which it operates. If you're following along at home, it begins at the top of page 94 :

The value zone of industrial companies is deep inside the organization, in the R&D centers and the manufacturing plants. Everything else [including the care and feeding of employees] could be seen as important but not essential to competitive differentiation and market success. For many years, IT had essentially been a manufacturing industry ... The rise of the knowledge economy, however, has changed all that.

In IT services, the "value zone" had been manufacturing-like: Lining up high technology and low-cost techies to deliver commodity services measured and differentiated chiefly by reliability, price, and speed. Now IT services was becoming a true knowledge business; the source of value was shifting from data processing to strategic support. In that emerging industry, people aren't cogs in a wheel: they're the crucial cognition customers come for.

As I said, this is grounded deeply in research. In one of the great HBR articles, "Putting the Service Value Chain to Work," first published in 1994, Jim Heskett, Thomas Jones, Gary Loveman, and Earl Sasser showed how front-line employee satisfaction is the driver of customer loyalty and profits, not a passenger in the bus. Later Nick Bontis of McMaster University in Ontario, chewing through massive amounts of data from the Saratoga Institute, showed direct, positive, significant correlations (regressions again!) between employee engagement and knowledge generation, and between knowledge generation and company performance. Vineet and HCLT were simply recognizing that they should double down on the capability system that would give the company an advantage.

"Simply," actually, is the wrong word. It takes smarts to recognize when the value proposition that built a big, successful industry has run its course. It takes guts to break with the pack of your competitors and try something new. It takes leadership to pull it off.